'Unintended Consequences' by Edward Conrad: already 'the most hated book of the year'?
'Unintended Consequences' by former Bain Capital managing director Edward Conard argues that economic inequality is a good thing rather than a problem.
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More payoff, says Conard, motivates more people to take risks, a handful of which could have huge payoffs for society and the economy.Skip to next paragraph
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But Conard doesn’t stop there. He argues investment banks make the economy more efficient, too, and argues in his book that the financial crisis was not due to greedy bankers selling sketchy financial products. (“It was a simple, old-fashioned run on the banks, which, he says, were just doing their job,” Davidson writes in the Times piece.) Collateralized debt obligations, credit-default swaps, mortgage-backed securities, and other dubious financial products (now deemed toxic) were sound tools that served the needs of sophisticated investors, according to Conard.
He goes even further, arguing for more – not less – government support of banks, even advocating the creation of a new government program that guarantees to bail out banks if they face another run.
That’s where economists, who have been growing hoarse in voicing their opposition to “Unintended Consequences,” tend to part ways with Conard.
“Until now, the official line has been that what we need are incentives — that jaawwb creeaytohrs (sic) won’t do their thing unless we dangle the carrot of immense wealth in front of them," writes economist and NYT columnist Paul Krugman. “But now we’re supposed to think that it’s not the prospect of future wealth, but wealth in being, that’s what is really so wonderful.”
“Undoubtedly some degree of income inequality is necessary and good to provide appropriate incentives, but at some point – and I believe we’ve hit that point – it harms an economy by robbing the vast middle class of the purchasing power it needs to keep an economy going, and it generates social and political upheaval,” Robert Reich, former labor secretary under President Clinton and currently Chancellor’s Professor of Public Policy at the University of California at Berkeley, told MSNBC.
Even less left-leaning, more pro-market economists like Glenn Hubbard -- a respected economist, dean of the Columbia School of Business, and one of Romney’s chief economic advisors -- had qualms about Conard’s as yet unreleased book.
That perhaps, is the point, suggests Conard in the NYT interview.
“People get very angry before they change their mind,” he said. “Economics is counterintuitive. It just is.”
Husna Haq is a Monitor correspondent.